Bulgaria’s housing market recovering
Last Updated: April 02, 2015
In 2014, the average price of existing flats in Bulgaria increased 1.15% to BGN 874.49 (€447.02) per square metre (sq. m.), the first year-on-year increase since 2008, according to the National Statistical Institute (NSI). When adjusted for inflation, the price of dwellings actually increased 2.05% last year. In Sofia, the capital, the average price of dwellings was up by 3.1% in 2014 from a year earlier, at BGN1,501.73 (€767.75) per sq. m.
Bulgarian property prices are now 38.3% (-44% in real terms) lower than at their Q3 2008 peak, when average national prices reached BGN1,418.24 (€724.97) per sq. m.
Out of 28 provinces of Bulgaria, ten provinces saw house prices increase in 2014, including Stara Zagora, with an annual house price rise of 4.8%, Burgas (4.6%), Shumen (4.2%), Veliko Tarnovo (3.6%), Silistra (3.6%), Plovdiv (2.6%), Ruse (1.6%), Varna (1.4%), and Kardzhali (1.4%). There were price drops in Kyustendil (-6.3%), Pernik (-5.7%), Sliven (-4.1%), and Pleven (-4%).
From 2000 to 2008, Bulgaria had a house price boom, with residential property prices surging around 300%. The bubble burst at the end of 2008:
- In 2009, Bulgaria's average dwelling price plummeted by 26.31% (-26.72% in real terms);
- In 2010, the average dwelling price fell by 5.58% (-9.68% in real terms);
- In 2011, the average dwelling price fell by 6.16% (-8.67% in real terms);
- In 2012, the average dwelling price fell by 1.4% (-5.42% in real terms);
- In 2013, the average dwelling price fell 1.21% (but increased 0.38% in real terms).
In 2014, the number of newly-built residential buildings rose 11.96% from a year earlier, to 2,462 buildings, according to the National Statistical Institute (NSI), in contrast to the declines of 8.34% in 2013, and 18.65% in 2012.
The current recovery is expected to continue. Demand for properties in the major cities will grow, and the supply will become increasingly limited due to the low levels of new construction, according to local property experts.
“An important element of the new market reality is the return of the confidence in the property market. More and more buyers are thinking of buying property because real estate is a safe real asset and good investment,” says Polina Stoykova of Bulgarian Properties. “It is clear and obvious that the buyers have permanently returned,” Stoykova added.
European Union citizens can now purchase properties in Bulgaria, including land. The 5-year moratorium on land purchases, set as a condition in the Accession Treaty between Republic of Bulgaria and The European Union, was lifted in January 1, 2012.
Previously, foreigners could purchase land only in the name of a legal entity and were not allowed to own a property. The lifting of the ban now gives European citizens the right to own property as individuals.
Rental yields are moderate in Sofia, Bulgaria
Sofia has moderate gross rental yields - i.e., the rental return on a property if fully rented out, before all expenses. Yields in the centre are around 4.7% to 5.7%. Yields a little further out are a half a per cent higher.
Doctor’s Garden, Ivan Vazov, Iztok and Lozenets are among the most sought after addresses in the centre. Embassies, museums and universities are located here. These areas also have many parks and green spaces, making them popular with expats.
In the southern part of Sofia in Vitosha Mountain (or in the vicinity) are prestigious suburban neighborhoods like Boyana and Dragalevtsi. Though new developments being built here are increasing the stock of rental apartments, we find better yields here on the very smallest apartments, with yields stretching up to 6.4%. Last year we found that the very biggest apartments command exceptional yields at 8.4%. We weren't able to gather enough data this year, but that may be worth investigating.
We aren't able to provide yields in Bulgaria’s beach and ski areas, because rents in these areas are highly seasonal.
Low taxes in Bulgaria
Rental Income: Gross rent earned by nonresidents is taxed at a flat rate of 10%, withheld at source. Deductions are not allowed for nonresidents.
Capital Gains: The sale of real estate by nonresidents in Bulgaria is subject to 10% withholding tax on the net gains received.
Inheritance Inheritance of direct descendants is not taxed. For all other beneficiaries, the inheritance tax rates vary, depending on the relationship between the donor and the heir.
Residents: Residents' worldwide income is taxed at a flat rate of 10%.
Total transaction costs in Bulgaria are moderate
Total roundtrip transaction costs are around 5.30% to 10.30% of the property value. The buyer pays for transfer tax (0.10% to 3%), notary fee (0.10% to 1.50%) and 0.10% registration fee.
The laws are pro-landlord
Bulgarian law is pro-landlord.
Rent: There are no rent controls, so rents and terms and conditions can be freely negotiated between the parties. Any method of rent increase can be agreed upon, including indexation, and periodic progressive increases.
Tenant Eviction: Bulgaria’s weakness is the inefficiency of the court system, which can, in practice, make it difficult to evict a tenant. Usually it is the landlord who initiates litigation. But the length of proceedings often dissuades them. It takes an average of 660 days to evict a tenant.
Meager economic growth expected in 2015Bulgaria is one of Europe’s poorest countries, with a GDP of around US$7,648 per capita in 2014, based on data from the International Monetary Fund (IMF). The country is also one of Europe’s most corrupt. Bulgaria’s transition from communism was not easy. Things only really started to improve when Bulgaria’s last Tsar Simeon II became the democratically elected prime minister from 2001 to 2005. His government pushed market reforms intended to ease accession to the EU.
Bulgaria enjoyed an economic boom from 2000 to 2008, with the economy expanding by an average of 5.6% per year. But in the June 2005 elections, the Bulgarian Socialist Party (BSP), successor to the Bulgarian Communist Party, led by Sergei Stanishev won most seats in parliament. After weeks of wrangling the main parties signed a coalition deal under which he became prime minister, but largely bound him to continue previous policies (partly constrained by EU membership conditions).
Bulgaria joined the European Union in January 2007. In the coalition's second term Bulgaria lost millions of euros of EU financial aid due to allegations of widespread political corruption. In the July 2009 elections, the center-right party, Citizens for European Development of Bulgaria (GERB) led by Boyko Borisov, soundly defeated the BSP.
In October 2011 presidential elections, Rosen Plevneliev of the GERB emerged victorious. Then in May 29, 2013, Prime Minister Plamen Oresharki of the BSP came to power after anti-austerity protests forced out former Premier Boyko Borissov’s GERB party and triggered a snap vote.
Oresharki faces strong opposition, the key issue being the appointment of controversial media mogul Delyan Peevski as head of the state security agency DANS. Then in July 2014, Oresharki stepped down from office, paving the way for a snap election in October 2014. Boyko Borisov returned to premiership as his GERB party forms coalition with fellow centre-right Reformist Bloc.
Bulgaria’s economy expanded by 1.5% in 2014, after growing by 1.1% in 2013 and 0.6% in 2012, according to the European Bank for Reconstruction and Development (EBRD).
The economy was projected to grow by 0.8% this year and by another 1% in 2016, according to the European Commission. The World Bank is more optimistic about Bulgaria’s economy, with growth forecasts of 1.1% in 2015, 2% in 2016 and 2.7% in 2017.
In 2014, the country’s budget deficit rose to 3.7% after a budget amendment and thus exceeded the EU deficit limit of 3%. In November 2014, Bulgaria’s parliament approved a 2015 budget with deficit equivalent to 3%. The deficit for the first two months of this year was just 0.2% of GDP, the lowest in the past five years. State debt is expected to increase to BGN24.5 billion (€12.52 billion) or about 30% of GDP.
The country had negative inflation of -1.7% in February 2015, after -2.3% in January 2015, according to the Eurostat.
Unemployment is expected to fall to 10.9% in 2015, according to the European Commission.